Putting Your Best Foot Forward: Finding (or Rather, Becoming) Your Profit Expert
As a business owner, I didn’t know what I didn’t know.
I knew my business, I knew how to get things done, and I knew how to sell my services, but I wasn’t an accountant and, at the time, didn’t recognize the incredible impact understanding the financial side of my business could have on my success. That’s not to say I didn’t make the connection between margins and profitability, or cost of goods sold and ROI, but I must shamefacedly admit that I avoided spending time in the books and didn’t realize the valuable information hidden in my financial reports that were waiting for me to discover them. I wasn’t really a profit expert.
One of my best friends at the time was a CPA, had been on the accounting team for one of the worlds largest oil companies, and was teaching small business accounting and bookkeeping at the time. We would sometimes talk about what I was doing and he would offer advice, but I was too eager to dismiss the extra work he was suggesting as accounting mumbo jumbo that could wait.
He espoused a business model I’ve come to appreciate—having learned it the hard way. He always argued that when marketing, production, and the accounting function of a small business are working together, profits increase. I was ignoring the value (other than the obvious necessity) of the accounting process, and didn’t have the three disciplines working together to turbo charge my profits. In a nutshell, here’s how he looked at it:
1) Marketing: “Great customers don’t just appear; they are made.”
This is true for every business, but particularly true for small businesses. Nothing happens if you can’t sell your products or services.
I learned as a young man sweeping the warehouse floor and driving the delivery truck that everyone in the company was part of the sales/marketing effort. My Dad would say something like, “When you’re making a delivery or helping someone on the counter, you will probably be the person many of our customers will see the most. It doesn’t matter what I tell them, if you drop the ball.”
I’ve found this to be true. Your brand is not your logo, your corporate colors, nor what you say about your company—it’s your values and how you (and your employees) act on those values at every point of contact. That includes the people who answer the phone, your salespeople, those that deal with customer complaints, make deliveries, and every other part of your business. What’s more, you set the tone. It starts with you.
2) Production: “Become the expert on what happens inside your business.”
Although it wasn’t a buzzword at the time, he was a big proponent of a metrics-driven business. He understood the value of communication and that the people closest to the work understand it the best—and they had valuable information they could share to make things more efficient (and profitable) if you listened.
He advocated establishing key metrics and goals, sharing those goals with everyone, measuring performance, and then taking what you’d learned to make improvements. When everyone is working toward the same objectives and gets regular feedback on how the company is doing, empowered employees will take action that results in improvement.
3) Accounting: “This is where the profit expert lives.”
We all know that cash flow is the lifeblood of every business. In fact, many businesses that are incredibly successful at building products or creating the services customers are willing to pay for, languish because they don’t have enough cash flow or they mismanage the cash flow they have.
To make this an even bigger challenge, popular media would have us believe that capital is the answer to every problem business owners face; and many business owners who aren’t, or lack, a “profit expert” make decisions that seemingly make a lot of sense, but in reality makes it more difficult to be profitable by further burdening their business’ cash flow with debt they can’t support.
Making informed decisions about your business implies that you know your business—inside and out. I learned the hard way it includes understanding things like income statements, balance sheets, and working capital ratios—that working capital was more than simply what I had in the bank at any given time. Once I came to better understand the importance of all that accounting “mumbo jumbo” it made a difference in how I approached decisions and the profitability of my business.
Having a greater understanding of my business’ finances also helped me better plan for the future and identify potential areas where I could improve the bottom line.
Financial literacy month is a great time to identify your profit expert. Isn’t it you?
I once spoke with a lender who said, “If I can tell more about a business’ health by looking at the financial reports than the business owner, I’m not going to offer them a loan.”
If you’re unsure about anything your financial reports are telling you, talk to your CPA, accountant, or other trusted advisor and ask them to explain anything you don’t understand. Like any specialized field, there is jargon associated with small business accounting that you need to be familiar with. Make sure you ask about any terms that are unfamiliar. If you’re at all like I was, there were things about my business I didn’t know until I’d made a mistake or two. Had I paid more attention to my friend, I would have been ahead of the game.
If you’d like to learn more, he wrote a book that’s well worth the read, In the Black: Nine Principles to Make Your Business Profitable, by Allen Bostrom. It will definitely help you become a more savvy profit expert.
Business owners who read this article also read:
3 Business Jokes for Your Friday
Andrea Gellert | April 4, 2014
Customer Success Story: Private Chauffer Club Small Business Loan
OnDeck Team | November 1, 2010
What’s an MVP and Why Is It Important for My Business Idea?
Ty Kiisel | February 24, 2016
Sometimes It’s the Little Things that Ruin Your Credit
Ty Kiisel | December 15, 2014
Customer Success Story: JPON Glass Company
OnDeck Team | October 25, 2011
Strategic Borrowing Benefits to Increase Your Loan Options
Ariele Krantzow | July 20, 2017
A Guide to Managing Your Cash Flow…From A Dentist
Ariele Krantzow | July 18, 2017
5 Tips to Evaluating Your Small Business Social Media Marketing
Jenn Prystupa | June 30, 2017
Looking Back at Your Business Goals in the Summer is a Good Idea
Guest Post | June 30, 2017
Financial Metrics Every Small Business Owner Needs to Know
Ty Kiisel | June 30, 2017